Is there life after the IMF?

Ian Boyne, Contributor

Let's get this straight: Our priority now must be reducing our debt and fiscal deficits, lowering inflation, managing our exchange rate responsibly, and generally achieving macroeconomic stability. We must get our economic fundamentals right. Job Number One.

Those things are necessary, but not sufficient for sustainable economic growth. Foreign investors are not going to flock to us just because we have achieved macroeconomic stability. Richard Byles might still be lamenting why the private sector is not eager to invest even after the Government has passed eight or more International Monetary Fund (IMF) tests. Export growth will not follow just because we have achieved macroeconomic stability.

Last Tuesday on Nationwide, Cliff Hughes and George Davis facilitated a most robust, intense and unparliamentary (meaning civil) debate between economist Damien King and me. Damien has since posted the lengthy debate on Twitter. We eventually agreed on some critical points: I was never disagreeing with him about the necessity of certain neo-liberal prescriptions: What I have challenged is his faith in the magic of the market, what I have construed as his market fundamentalism.

In fact, I since reviewed the more-than-300-page 2011 country report which the World Bank did on Jamaica, Unlocking Growth, to which Damien contributed. I found this gem: "Recent fiscal reforms are necessary but not sufficient. There is no silver bullet for all of Jamaica's problems or any single, unique binding constraint whose removal would solve them."

The World Bank identified low productivity, inadequate human capital development and crime as Jamaica's primary binding constraints. Macroeconomic reforms by themselves won't solve those problems. In fact, in Bruce Golding's brilliant analysis of Jamaica's economic challenges in his Caribbean International Network lecture in October last year, he pointed out that Jamaica's contractionary programme with the IMF would necessarily constrain expenditure on education, training and crime-fighting. Anyone who wants a nuanced and sophisticated understanding of our dilemmas needs to read that lecture.

NOT JUST ABOUT TESTS

Golding put it well: "The challenge facing the Government, and indeed, all of us, is not just passing quarterly quantitative IMF tests, but (and, indeed, in order to do that) how to generate growth while pursuing a constrictive, growth-passive fiscal policy as required under the agreement."

He continued: "When a Government's expenditure is so constricted that it is unable to provide the resources to effectively tackle crime and violence, maintain and improve infrastructure or develop a workforce with the necessary education and competencies - the essential prerequisites for investment - job creation and growth will remain but a fleeting illusion."

One of the fortunate things we don't give thanks for is the general political consensus which exists about macroeconomic policy. While the Jamaica Labour Party is talking about providing stimulus, the party generally accepts the IMF-mandated macro-prudential policies being pushed by the finance minister.

We should be grateful to have a responsible Opposition which has not sought to exploit people's hardships as a result of this austerity programme. Make no mistake about it, no tyres are burning in the streets, but people are hurting. And it's not just poor people. I can tell you of lower-middle-class people who have to skip work days because they don't have bus fare. I can tell you of lower-middle-class people who are eating one meal a day and who have to be constantly juggling bills and hiding from creditors.

AUSTERITY HITS
POCKETS

One friend with a first degree who is now
studying for professional qualification has to frequently walk long
distances to go home and has to get up very early to catch a ride to
work as there is no bus fare. She told me she walked from UTech to
Half-Way Tree the day after payday last
month.

Austerity measures are ripping people's pockets
and lives apart, but Andrew Holness has been a responsible, measured
opposition leader who had the courage to face down 'ray-ray' politics in
his own party to be true to what his head knows: These measures are
necessary to cauterise our economic non-performance over the last 40
years.

How long this implicit partnership between
Government and Opposition will last is anyone's guess. It could just
take one small tipping point to ignite things. And the pity is that the
people could make all these sacrifices for
nought.

Last Thursday was the 17th anniversary of
Michael Manley's death. Whatever we say about Manley, we should concede
that he understood our challenges as a small developing
state.

He knew that we were operating in an
inhospitable international economic environment. The World Trade
Organisation has kicked away the very ladder which was used to build the
successful economies of the world. The IMF and the World Bank are not
allowing us to do things which were routinely done to produce
growth.

BUILDING HUMAN CAPITAL

I
pointed out some crucial things to Damien King in our debate last week
on Nationwide: Britain, continental Europe, Japan, the Far East,
Scandinavia, China, India, Brazil, Chile did not use purist neo-liberal
strategies to grow. In other words, they have not just focused on
macroeconomic stability. They have used the state to build human and
social capital and to assist markets to grow. The number one country in
the world rankings in the Global Competitiveness Report
2013-2014 is Switzerland, followed by Singapore and then
another Scandinavian country, Finland. Sweden is fifth, Norway is 11th
and Denmark 15th (out of 148). Social market
economies.

Japan's Ministry of International Trade and
Industry was central in building its economic juggernaut. Japan tightly
controlled imports, had state-directed funds to industry, used
industrial planning heavily (picking winners), subsidised exports,
financed research and development, and gave enormous marketing and
promotional support to its companies.

Taiwan, South
Korea and even Singapore used the state to promote growth. Former chief
economist at the World Bank, Justin Yify Lin, in his 2012 book,
The Quest for Prosperity: How Developing Countries Can Take
Off, says: "A close look at the history of capitalism
shows that even Britain and the United States, conventionally believed
to have succeeded by adopting laissez-faire policies ... actually
promoted their national industries through various forms of active
government intervention that included tariffs, subsidies and other
measures. Many of today's rich countries also used extensive government
intervention to jump-start their process of modern economic growth. In
the 19th century, Germany and Japan kick-started their industrialisation
with state-owned enterprises in textiles, steel and
shipbuilding." Today, state intervention is
derided.

FAILING STRATEGY

Damien
made the point that cross-country research showed that the vast majority
of nations which used state interventionism have failed. True. But I
countered that with what we must do, methodologically, is to look at
those relatively few countries which have succeeded to find what they
did. When we do so, we find that all except the city-state, entrepot
economy of Hong Kong have not relied on macroeconomic stability alone.
All used interventionist policies in some form. The BRICS (Brazil,
Russia, India, China and South Africa) are not neo-liberal purists. In
the Latin American region, super-performer Chile abandoned Friedmanism
and purist neo-liberalism and provided substantial state support to
exporters and slapped on capital controls.

Fiscal
prudence alone - legislated or not - is not enough to take us out of our
economic hole. We had better focus on all the determinants of
growth.

Ian Boyne is a veteran journalist. Email
feedback to columns@gleanerjm.com and
ianboyne1@yahoo.com.